Landmark Financial Overhaul Will Protect African Americans

President Barack Obama said sweeping new financial regulations passed by the U.S. Senate Thursday will protect consumers from "the predatory practices of unscrupulous lenders" and prevent future financial crises.

African Americans stand to benefit from the tough new rules that will ensure that consumers get the information they need to make financial decisions and "level the playing field" by subjecting all lenders to tough oversight.

"The Wall Street reform bill represents the strongest consumer financial protections in history," Obama said. "You have a stake in it if you've ever been treated unfairly by a credit card company, misled by pages and pages of fine print or ended up paying fees and penalties you're never heard of before."

The new reforms will help protect African Americans and other people of color from predatory lending, regulate payday loans and other alternative banking products, and help end complex financial paperwork and hidden fees such as bank overdraft charges, said Dr. Cecilia Rouse, a member of the White House Council of Economic Advisers.

African Americans and other minorities were hit particularly hard by the financial crisis that almost collapsed the nation's economy. In 2005 and 2006, 53 percent of the loans given to African Americans were subprime. Blacks were three times more likely to receive higher-priced loans than whites.

That has had a severe impact on Black wealth, as homes are most Americans' most valuable asset.

More than 57 percent of the subprime loans granted in 2006 are in foreclosure or pre-foreclosure. At the same time, African American home ownership gains are decreasing. By 2004, the Black home ownership rate was 49.4 percent. In 2008, it dropped to 47.5 percent and may be dipping even lower.

"One of the unique things about this housing bubble and this huge extension of credit is that companies were offering these teaser mortgages to consumers, offering credit cards to individuals who ... in ordinary times, would not have been eligible for this credit," said Rouse.

"So what really happened is they were going after the most vulnerable consumers and those vulnerable consumers were the low-income consumers. In that sense, African Americans, along with other lowincome individuals, were the canary in the coal mines. ... They were the ones that the companies were making the most money off of and [they were] going after [them] in a way that was irresponsible."

For instance in sworn affidavits contained in lawsuits filed against Wells Fargo, loan officers wrote that they were ordered to push home loans in Black churches, conduct seminars in low income neighborhoods and referred to Black people as "mud people" who don't pay their bills and to the subprime loans they sold them as "ghetto loans." "That's why this consumer protection agency is so important to prevent that," Rouse furthered. "It's also why financial literacy is important. It's important that consumers learn to understand the arcane language... and understand what they are getting in to."

In addition to regulating big Wall Street banks, payday loan institutions and check-cashing businesses will also be regulated. Some of the interest rates and fees charged by these organizations amount to astronomical interest rates that consumers are not aware of or don't understand.

"This agency would have oversight over traditional banks, but for the first time have oversight [over] alternative- financial services, such as check cashier and payday lenders, so we can help families avoid those hidden costs, hidden fees and exorbitant costs," said Rouse.

"Part of what this agency will be doing is trying to rein in some of the practices that banks currently engage in that make participating in the regular banking system distasteful to a lot of African Americans, such as enforcing the rule that stops banks from enrolling customers in expensive overdraft programs. There will be a push to get more households to be in the regular banking system," Rouse said.

A report released recently by the Center for Responsible Lending (CRL). Foreclosures by Race and Ethnicity: The Demographics of a Crisis - found that while the majority of families who have lost their homes are non-Hispanic and white, African-American and Latino families have been disproportionately affected relative to their share of mortgage originations.

These racial and ethnic patterns are likely to continue in the future, CRL said. According to the report, non-Hispanic whites represent the majority of at-risk borrowers, but African-American and Latino borrowers are more likely to be at imminent risk of foreclosure - which refers to the number of borrowers who are two or more payments behind on their mortgage combined with those who are already in the foreclosure process.

"The findings in this report describe the devastating impact that the casino culture of Wall Street and the mortgage industry is having on communities of color," said Wade Henderson, president and CEO of the Leadership Conference on Civil and Human Rights. "Instead of owning a piece of the American dream, these hardworking families have borne the brunt of an anything-goes regulatory system that has turned a blind eye toward predatory lending and t he needs of vulnerable consumers, who may never recover the wealth they have lost."